Tuesday, August 4, 2009

Investing: Lessons From Irwin T. Yamamoto

The headline is from The Kirk Report. First though, Peter Brimelow at MarketWatch:

Two letters which will be missed

Very few letters made money during the Crash of 2008. Paradoxically, two of those who did have just abruptly closed.

...I never met the Yamamoto Forecast's Irwin Yamamoto -- judging from the almost complete absence of results when you Google him, very few people did -- but I nevertheless felt a real pang when I saw his death, at the shockingly young age of 54, reported this week.

Yamamoto's personality, revealed in his laconic monthly letters and his adamant refusal to recognize the Internet, was intriguing. His calm, value-oriented buy-and-hold style, in a time of unprecedented volatility and frenetic communications, was radical and daring -- and a salutary reminder that many different styles can work in the stock market.

And it was indeed working. Over the year to date through June, Yamamoto was up 14.6% by Hulbert Financial Digest count, versus 4.5% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past 12 months, Yamamoto was up 20.4% against negative 26.4% for the total return Wilshire 5000.

But Yamamoto's record was strong over the long term, too. Over the seven-plus years that the HFD was following Yamamoto, the letter achieved a 13.7% annualized gain, versus 0.2% annualized for the total return Wilshire. (Yamamoto had apparently been publishing since 1983, but reader requests only recently brought it to the HFD's attention.)

All of this delighted me. I concluded that the HFD's monitoring method had once again unearthed a winner, wittily dubbing the Hawaii-based Yamamoto "the Maui Tortoise," and settled down for profitable tacit partnership. ( See May 7 column.) I very much regret that this was not to be.

For the record, these were Yamamoto's last comments earlier this month, explaining his decision to remain only about 35% invested:

"In a strange way, we welcome a test of the March low. Yes, fear should return to the marketplace in that backdrop. Yet the remaining part of the portfolio not presently in equities would be put to work at that juncture. The cash proportion will be fully prepared to acquire shares of corporations which we are tracking at the moment. Furthermore, in all likelihood, additional shares of companies in the portfolio would be bought. Naturally, they must be at discounted levels."

Russell recently announced that he'll be assuming the subscription liabilities of yet another long-established service, details to be revealed later.

We have to be glad he's still around

And from The Kirk Report

Lessons From Irwin T. Yamamoto

Be a consistent contrarian: Being contrarian was Irwin's nature. Whenever possible he took the unpopular view and found ways to make money from it. While some people love to think they are a contrarian as far as the market is concerned, when the heat is on and everyone (including the market itself) thinks you are dead wrong, they always run back to the herd. Irwin never did. Not once. No matter what. And, trust me, he was tested many times throughout his career.

Have courage: Every call Irwin made was a bold call. If it wasn't bold, he simply didn't make it. He refused to hedge his bets by trying to take the middle road or offering up so many contradicting opinions so he could later say he was right no matter what happened as so many "experts" do. To do well in the market, we all have to have the courage to make and stick with our convictions. Often the investment decisions that will work out the best are the ones that simply require the most courage to make....

...Think like a businessman: He told me often that he viewed himself as a businessman. A successful one "simply looks to purchase wholesale and sell retail." His goal was to know the worth of a company and then acquire it below its true value. After finding an interesting opportunity, he would then scour the balance sheet and read all of the footnotes focusing primarily on the company's cash position and relative cash flow. If those things looked good, he was especially encouraged if he saw insider buying. A simple, but effective strategy. To my knowledge, Irwin had only one stock screen in his toolbox - the new 52-week low list....MUCH MORE